China - Policy study on electricity universal service in China

Research Program with the SERC and the World Bank 68968 Policy Study on Electricity Universal Service in China Research Team of Policy Study on Electricity Universal Service in China December, 2006  Contents Preface.......................................................................................................................................... 1 1. Policy Basis for Universal service in electricity ............................................... 2 1.1 Major Conclusions of the Investigation and Study of Universal service in electricity2 1.1.1 A Brief Introduction to Universal Service ................................................................ 2 1.1.2 Main Conclusions of Investigation .......................................................................... 3 1.1.2.1 Research Methods, Sample and Contents of Investigation ................................... 3 1.1.2.2 Number and Situation of Villages, Households and Population with No Access to Electricity and the Solutions ............................................................................................. 4 1.1.2.3 Situations of Low-income Population and Electricity Consumption Per Capita .. 4 1.1.2.4 Actual Operation Cost and Rational Operation Cost Analysis of the Rural Power Grid ................................................................................................................................... 5 1.1.2.5 Rural Power Grid Transformation and Investment in Villages and Rural Households with No Access to electricity in the recent five years .................................... 6 1.1.2.6 Survey of Rural Households and their Demands on Universal Service in Electricity .......................................................................................................................... 6 1.1.2.7 Research into Urban Low-income Groups and Demand on Universal service in electricity........................................................................................................................... 7 1.1.2.8 Universal Service Projects in Electricity under Construction and the Problems... 8 1.2 Lessons of Universal Social Service Drawn from Domestic Relevant Industries..... 10 1.2.1 Postal Service ......................................................................................................... 10 1.2.1.1 Making Law and Determining Monopoly Right Are The Top Priority in Ensuring Universal Service. ........................................................................................................... 11 1.2.1.2 Setting an Overall Goal and Guaranteeing the Realization of Social Universal Service in a Phase-by-phase and Step-by-step Manner................................................... 11 1.2.1.3 All objects Are Charged Uniform and Low Service Postage .............................. 11 1.2.1.4 Supporting Social Universal Service with the Financial Subsidy of the Government ..................................................................................................................... 11 1.2.2 Telecommunications............................................................................................... 12 1.2.2.1 Providing Legislative and Legal Guarantee ........................................................ 12 1.2.2.2 Setting an Overall Goal and Guaranteeing the Realization of Social Universal Service in a Phase-by-phase and Step-by-step Manner................................................... 13 1.2.2.3 Making Clear the Management Principles and Purpose of Universal Telecom Service............................................................................................................................. 14 1.2.2.4 Establishing and Standardizing Compensation Mechanism of Universal Service ......................................................................................................................................... 14 1.2.2.5 Improving and Strengthening Supervision .......................................................... 15 1.3 Lessons of Universal Social Service Drawn from Foreign Relevant Industries ....... 16 1.3.1 Postal Service ......................................................................................................... 16 1.3.1.1 Strengthening the Building and Perfecting of Legal System of Postal Service .. 16 1.3.1.2 Defining the Scope of Postal Monopoly Right and Giving Corresponding i  Protection ........................................................................................................................ 16 1.3.1.3 Establishing and Improving Compensation Mechanism of Universal Postal Service............................................................................................................................. 17 1.3.2 Telecommunications............................................................................................... 17 1.3.2.1 Ensuring the Establishment of Universal Postal Service System through Legislation ....................................................................................................................... 18 1.3.2.2 Using Fund for Universal Telecom Service as Value Compensation Mechanism ......................................................................................................................................... 18 1.3.2.3 Setting up Special Managerial Authority for Universal Service Fund ................ 19 1.3.2.4 Implementing Universal Service Projects through Bidding ................................ 19 1.4 Lessons of Universal Service in Electricity Drawn from Abroad ............................. 20 2. The Fund Raising Mode and the Compensation Mechanism of the Universal Service in Electricity in China .................................................................. 21 2.1 Standard of the Universal Service in Electricity ....................................................... 21 2.1.1 Target Groups of the Universal Service in Electricity ............................................ 21 2.1.1.1 Urban Low-income Groups................................................................................. 21 2.1.1.2 Rural Areas .......................................................................................................... 22 2.1.1.3 Outlying Areas .................................................................................................... 23 2.1.2 The Current Situation of the Universal Service in Electricity in China ................. 23 2.1.2.1 The Urban Low-income Groups.......................................................................... 23 2.1.2.2 Rural Areas .......................................................................................................... 25 2.1.2.3 Outlying Areas .................................................................................................... 27 2.1.3 Standards of Universal Service in Electricity in Different Regions ....................... 28 2.1.3.1 Urban Low-income Groups................................................................................. 29 2.1.3.2 Rural Areas .......................................................................................................... 30 2.1.3.3 Outlying Areas .................................................................................................... 31 2.2 Estimated Funds in Need .......................................................................................... 33 2.2.1 Solving the Problem of Electrification Cost for Households without Access to Electricity ........................................................................................................................ 33 2.2.2 Users’ Power Rates and Power-supply Enterprises’ Operation and Maintenance Cost ................................................................................................................................. 34 2.3 The Capital Sources, Fund Raising Methods and Principle of Input ........................ 35 2.3.1 The Capital Sources ............................................................................................... 35 2.3.2 Fund Raising Methods and Principle of Input........................................................ 36 2.4 Electricity Universal Service Mode .......................................................................... 37 2.4.1 Universal Service Subjects ..................................................................................... 37 2.4.2 Operation Mode Analysis ....................................................................................... 38 2.4.2.1 Appointment Mode.............................................................................................. 39 2.4.2.2 Fund Mode .......................................................................................................... 41 2.4.2.3 Operation Mode Suitable to China ...................................................................... 44 2.5 Compensation Mechanism of Universal service in electricity .................................. 44 2.5.1 Using Monopoly Right to Guarantee Universal Service Provided by Power-Supply Enterprises....................................................................................................................... 44 2.5.2 Providing Tax Preference ....................................................................................... 45 ii  2.5.3 Government Establishing Universal Service Fund ................................................ 45 2.5.4 Government Compensating Universal Service By Means of Transferring Business Revenue........................................................................................................................... 45 2.5.5 Direction Financial Allocation by the State to Compensate the Deficit of Universal Service............................................................................................................................. 45 2.5.6 Business Compensation ......................................................................................... 45 2.5.7 Establishing Power Rate Regulatory Mechanism .................................................. 46 2.5.8 Policy Preference ................................................................................................... 46 3. Supervision Framework of Universal Service in Electricity ..................... 46 3.1 Supervision Target............................................................................................................. 46 3.1.1 Quantity.................................................................................................................. 46 3.1.2 Quality.................................................................................................................... 47 3.1.3 Fund raising and using. .......................................................................................... 48 3.2 Supervision and Control Principle ............................................................................ 48 3.2.1 Supervising and Controlling According to Law ..................................................... 48 3.2.2 Consistent Rights and Duties between Subjects and Objects................................. 48 3.2.2.1 Deciding Projects and Project Legal Persons through Bidding and Changing Disorderly Competition ................................................................................................... 49 3.2.2.2 The Power Network Transmitting and Distributing Electricity without Interruption...................................................................................................................... 50 3.2.2.3 Ensuring Supporting Services So that Power Networks Can Function Safely and Transactions Go Successfully ......................................................................................... 50 3.2.2.4 Obligatory Acquisition ........................................................................................ 51 3.2.3 Separating the Functions of the Government from Those of the Supervisory and Controlling Institution ..................................................................................................... 52 3.3 Task and Substance of Supervision and Control ....................................................... 52 3.3.1 Universal Service Open to the Entire Society ........................................................ 52 3.3.1.1 Providing Various Sorts of Information Service ................................................. 52 3.3.1.2 Formulating Industry Stipulations and Rules and Enhancing the Social Responsibility of Power Enterprises ............................................................................... 53 3.3.1.3 Ensuring Users’ Equal Right of Enjoying Service of Electricity ........................ 55 3.3.1.4 Deepening Traditional Electric Service and Including It into Universal service in electricity......................................................................................................................... 57 3.3.1.5 Power Enterprises Should Continue to Expand the Content of Service and Improve Its Quality ......................................................................................................... 58 3.3.1.6 Guaranteeing the Safety of Power Networks ...................................................... 59 3.3.2 Construction of an interactive system in universal service in electricity ............... 60 3.3.2.1 The construction of customer assessment system and the increasing of the public’s participation ....................................................................................................... 60 3.3.2.2 Effective Complaint Management....................................................................... 60 3.3.2.3 The establishment of risk management for an enterprise .................................... 61 3.4 Supervision Institutes and Their Responsibilities. .................................................... 61 4. Policies and Suggestions on Universal service in electricity .................. 62 4.1 Setting a Multilevel Goal of Universal Service That Corresponds with Economic and iii Social Development ........................................................................................................ 62 4.2 Establishing and Improving the Relevant Legal Guarantee System ......................... 62 4.3 Formulating a Special Plan for Universal Service in Electricity and Forming a Corresponding Target System ......................................................................................... 63 4.4 Improving the Regulatory Mechanism of Universal Service .................................... 64 4.4.1 Regulatory Institution............................................................................................. 64 4.4.2 Regulatory Measure ............................................................................................... 64 4.4.3 Principles and Objectives of Regulation ................................................................ 65 4.4.4 Regulatory Means .................................................................................................. 65 4.5 Formulating Relevant Supporting Policies................................................................ 66 4.5.1 Loan Policy ............................................................................................................ 66 4.5.2 Tax Policy............................................................................................................... 67 4.5.3 Financial Policy...................................................................................................... 67 4.6 Pushing Universal Service in Electricity Forward with State Energy Policy Combined ........................................................................................................................ 68 iv  Team Mmbers TEAM LEADERS: Li Junfeng Deputy Head and Senior Researcher of the Energy Research Institute, the National Development and Reform Commission Gao Shixian Head and Senior Researcher of the Research Centre for Energy Economics and Development Strategies, ERI, NDRC TEAM MEMBERS: Shi Jingli Deputy Research Fellow of the Energy Research Institute, NDRC Niu Chen Intern Researcher of the Energy Research Institute, NDRC Zhao Dongxu Ph.D. Candidate of the Institute of Quantitative and Technical Economics, Chinese Academy of Social Sciences CONTRIBUTING TO THE PROGRAM: Bai Yan Associate Professor and Ph. D. of the Department of Political Science and Public Administration, Peking University Huang Hengxue Professor and Adviser to Ph.D. Candidates of the Department of Political Science and Public Administration, Peking University Li Lingling Lecturer and Ph. D. of the North China Electric Power University Yang Zhigang Associate translation Reviser and Ph. D. candidate of the Department of Political Science and Public Administration, Peking University Lei Yuqiong Lecturer and Ph. D. of the BeiHang University Cui Jia Ph. D. candidate of the Department of Political Science and Public Administration, Peking University Preface Since the 16th Congress of the Chinese Communist Party, China’s central government and the State Council have worked out strategic objectives to comprehensively build a well-off society, put forward strategic tasks to build the New Socialist Countryside as well as taken measures to build a socialist harmonious society in accordance with the scientific development concept. Under new situations, the central government has presented all industries and departments with new demands in order to guarantee basic subsistence of people in urban cities and rural areas. As far as the electricity industry is concerned, all-out efforts should be made to provide electric services with rational price and high quality and to press forward the works in terms of universal service in electricity with a view to carry out the social and economic development strategies. The program made an analysis and conducted in-depth research on China’s universal service policy in electricity with advanced international practices and local conditions taken into consideration. Including a multiple-layer of meanings such as availability, non-discrimination and affordability, universal service in electricity has gained general acceptance of the international community and has been successfully implemented in some developed countries. China is a vast and populous country, with most of its population living in rather concentrated areas. However, there are still some residents living in remote or deep mountainous areas or on islands, with no access to electricity for basic subsistence. At the end of 2005, there were about 2.5 million households living in areas uncovered by electric networks. 70 percent of China’s population is living in rural areas, some of which still suffer from inadequate supply of electricity and that the quality of power supply cannot be guaranteed. As the reform of China’s power system gradually deepens, the power enterprises have maintained rapid development, with the current installed capacity exceeding 500 million kilowatts. However, given the speed of our economic development, supply-and-demand tension of electricity continues to exist in certain regions and in a certain period of time, thus power switch-off has occurred from time to time. Promoting universal service in electricity is one of the major tasks facing China’s power development. This topic makes objects of universal service in electricity in the narrow sense as the major subject of study. With the financial aid of the World Bank, the China Electricity Regulatory Commission has coordinated efforts to conduct research into the universal service in electricity since 2006. The program is composed of two parts: the first part is the research and investigation into the universal service in electricity, which is led by the North China Electric Power University; the second part is the study of the strategic workout scheme of the universal service in electricity, which is led by the Energy Research Institute, NDRC and coordinated by the Department of Political Science and Public Administration, Peking University. On the basis of comprehensive research and study, the report proposed advice on the standard system, fund-raising and compensation mechanism, regulatory framework and related support policy of the country’s universal service in electricity by giving reference to the domestic and international experiences of the electricity, telecommunications and postal industries and taking consideration into local conditions. 1 1. Policy Basis for Universal service in electricity 1.1 Major Conclusions of the Investigation and Study of Universal service in electricity 1.1.1 A Brief Introduction to Universal Service As an internationally recognized concept, universal service falls into the category of public policy. It means that the state, in order to safeguard the basic rights and interests of all its citizens and to narrow the wealth gap, formulates laws and policies so that all its citizens, no matter where they live within the territory of the country, can obtain kind of service that can meet the demand of basic living requirements and development at a universal and affordable price. At present, most countries around the world define the overall goal of universal service in electricity as providing reliable power at a reasonable price so as to meet the demand of those citizens who lack or cannot afford electricity. China’s State Electricity Regulatory Commission has defined its universal service in electricity like this: “The state formulates policies and takes measures to ensure that all users have the access to reliable and consistent basic power service at a fairly reasonable price.